TEN YEARS OF JAPAN’S NET NEUTRALITY POLICY A review of the past and recommendations for the future Toshiya Jitsuzumi, D.Sc., Professor, Faculty of Economics, Kyushu University Paper is available at the SSRN: firstname.lastname@example.org Summary Until recently, the Ministry of Internal Affairs and Communications (MIC) could let the market dynamism deal with the net neutrality issue without introducing any special rules, because the Japanese broadband market was very competitive thanks to the Telecommunications Business Act (TBA) and NTT Law, both of which were originally designed to foster competition mainly in the POTS market. However, as the focus of the broadband usage moves toward bandwidth-rich contents and the mobile environment, conditions that guaranteed the appropriateness of Japan’s net neutrality approach cannot be met any longer. Fiber wholesale of NTT and zero-rating by mobile virtual network operators have increasingly upset the market dynamics. As a result, the net neutrality concept is changing right now. Considering the fact that mobile operators are much less disciplined than fixed-service operators in the current framework, a new approach has to be designed. This approach must be less structural but more behavioral, and has to include a case-by-case judgment to deal with the ever-changing condition. In order to minimize the regulatory uncertainty, the MIC has to move fast to come up with a ground rule that accommodates the market requirement. However, the general literacy of Japanese people who support the rule-making process does not seem to be satisfactory; this has to be the policy focus for Japanese telecom regulators. Cause and “twin problems” of net neutrality The net neutrality issue is a combination of the traffic congestion problem, which occurs because of a limited network capacity at the Internet backbone, and the possibility of anti- competitive behaviors by dominant operators. This situation itself is common and can be dealt with by traditional transportation economics if the following three unique features are not present: 1. Internet backbone is a collective commons supported by many individual operators. 2. Prevalence of best-effort quality may inhibit network investment if competition is insufficient. 3. A serious information asymmetry exists with respect to network quality of service (QoS) between ISPs and end users. Net Neutrality 1.0 In 2007, only fixed broadband was relevant. In 2016, broadband is mostly mobile. • Interconnection rules: require network operators to interconnect • Interconne onn c ec tion rul ul es: es: requi equire network operators to int nt erconnect • SMP regulations: strict control on NTT East and NTT West (NTT East/West) • SMP regulations: loose co control on mobile giants • NTT Law: NTT East/West are not allowed to have own ISP functions • NTT Law: NTT DOCOMO is free to expand its business domain Subscriber share other NTT cableco 8.2% communications powerco 2.4% 19.0% 6.3% other vendor 2.7% Sonet NTT plala 6.7% 7.4% other NTT 0.6% nifty 6.3% KDDI 8.5% Biglobe 9.4 S % oftbank J:COM 8.3% t o e t l hec r o m SB SoftbankBB other KDDI 1 0 ..2 2 % % 10.9% 2.1% However, if switching costs “Seemingly” competitive ISP market are taken into consideration, we may have a different MIC’s Definition of “neutrality” in 2007 conclusion (Jitsuzumi, 2014) Consumers are entitled to: 1. use IP-based networks flexibly and access the content/application The MIC could trust the market to layer freely. efficiently control congestion. 2. connect to IP-based networks freely through terminals that comply Create Competitive Conditions with technical standards provided by laws and regulations and these terminals may connect to each other flexibly. • Guidelines for Consumer 3. use the communication layer and the platform layer free from Protection Rules discrimination at a reasonable price. • Measurement of mobile QoS Basic viewpoints that ensure net neutrality: We have to face Co-regulation-like rulemaking 1. fairness in network cost sharing of network enhancements a much less • competitive Anti-DoS/DDoS Guideline 2. fairness in network use when market power exists on a specified layer • market. Packet Shaping Guideline Net Neutrality 2.0 New variables that Zero-rating of MVNOs Issues related to “zero-rating” require special Concern for the privacy of correspondence (Article 4, TBA) policy attention in a • To what extent should the usage of DPI be al owed from less competitive + the viewpoint of the privacy of correspondence?
Is “opt-in” required and is “opt-out” allowed? market Related to end-user protection Concern for discrimination (Article 6, TBA) • Can MVNOs offer zero-rating program under the Japanese definition of “net neutrality”? Some of these
Should MVNOs have the same level of MVNOs are responsibility as MNOs?
Can the higher competitiveness of the MVNO content/application market make a difference? providers; thus may have reasons to be Re Re lated to healthy OTT development anti-competitive. Facing the increasingly oligopolistic and swiftly changing market, the MIC cannot and should not continue with the current approach Findings based on a questionnaire survey conducted in May 2016
TWO SETS OF POSSIBLE POLICY TOOLS What does “neutral network” mean Web-based survey for pre-registered monitors in the broadband ecosystem? Structural remedy: Increasing competitiveness Survey period: May 26, 2016 – May 30, 2016 Who should be responsible? 1. Introduce more competitors
N=1067 What level is required? New MNOs and/or MVNOs 2. Lower switching costs How to guarantee the optimal Mobile number portability, unlock SIMs, data portability balance between fairness and 3. Regulate marketing hype efficiency? Cap excessive cash rebates What conditions are required to Establish minimum transparency guarantee governmental intervention? Behavioral remedy: Restricting SMP players How to measure the It can be assumed that only 5.5% of 4. Self-regulation competitiveness in the market? the respondents feel the existence of 5. Re-regulation Role of ex-ante regulation? the net neutrality problem in Japan. Tightening regulations on category II facilities Role of ex-post remedy? According to the logit estimation, Introduce tariff regulations 1. When one is a male 6. New rules for net neutrality (including min. QoS) In order to minimize the regulatory uncertainty 2. When one has an IT-related job 3. If one is a specialist A new approach has to be designed; however, that is inevitable in a case-by-case approach, the They are more likely to be 4. If one is a blogger considering MIC’s experiences in the Japanese telecom MIC has to move fast to come up with a ground interested in and understand net 5. If one has created digital contents/apps market since the 1980s, it must be less structural but rule that accommodates the market requirement. neutrality. 6. If one has used an image hosting service more behavioral, and has to include a case-by-case Whether the ground rule can be drafted in a 7. If one has used a bulletin board system Tar T get for educating judgement in order to deal with the ever-changing timely fashion depends on how ordinary users 8. If one is a twitter user “net neutrality” condition. perceive network neutrality in their daily lives. 9. If one earns a higher income Al figure sources and references are available from the author. Special thanks to Dr. E. Tanaka